“…assuming one purchases a $500,000 property at today’s prices (170 Teranet index), looking at scenarios in 2015 and 2020 where prices re-align with the respective trend lines:
“New Normal” price will appreciate to $670,000 (10.6% CAGR) in 2015 and $1,030,000 (9.5%) in 2020
“Trendline” price will appreciate to $508,000 (0.9%) in 2015 and $655,000 (3.6%) in 2020
“Old Normal” price will depreciate to $341,000 (-11.7%) in 2015 and $394,000 (-2.8%) in 2020
“Old Normal Bottom” price will depreciate to $302,000 (-15.0%) in 2015 and $350,000 (-4.2%) in 2020
– from ‘Vancouver Teranet HPI Trendline Analysis’, by jesse, at Housing Analysis, 30 Mar 2012, see his article for definitions of various trend lines.
jesse’s analysis assumes return to various arguably-valid trend lines.
In each case there is the possibility of overshoot, a common scenario when ‘reverting to the mean’.
This analysis can be compared with our own technical analysis, previously posted [VREAA 11 Sep 2010, updates 12 Oct 2011 and 2 Jan 2012; see below]. Note, of course, that our analysis is of Vancouver average SFH prices, not the Teranet data which jesse’s analysis uses, and is limited by the use of straight lines on linear scale charts.
We foresee an ultimate reversion to a trendline reflecting growth at the rate of inflation (roughly equivalent to jesse’s ‘Old Normal’) but, given the magnitude of the diversion from mean on the way up, we fully expect a large overshoot to the downside on the way down. The speculative component will likely be completely wrung out of the market, and this will probably require a return to early 2000’s prices. That equates to the 75 range on the Teranet chart, and the 444K+ range on the Vancouver SFH chart. Thus, 50%-66%-off the peak prices.